By Tannistha Dey
India is negotiating wide-ranging investment pledges from the European Union as part of a comprehensive trade deal that both sides hope to conclude by the end of the year. Besides investment, India is seeking increased access to EU markets in legal, accounting, and information technology services. This fresh momentum is in the context of the EU’s recent assurance of investments in the US market under the US-EU free trade agreement. For India, the closure of the deal with the EU is strategically critical, as its exports to the US, valued at over $40 billion, bear tough tariffs of 50 percent. Since EU is India’s second-largest export market and largest investor in its services sector, Indian exporters are optimistic that the agreement will relieve the pressure, especially from labor-intensive sectors.
The latest round of talks didn’t wrap up any major chapters, but negotiators did make progress in several areas, especially on goods. Still, big sticking points remain such as market access for cars, alcohol, and services as well as cutting down on non tariff barriers that raise costs for businesses. Both sides have flagged these issues, with vehicles and liquor topping the EU’s list of demands.
Market access in vehicles and liquor is among the most prioritized EU demands. After India partially opened these industries to the UK in a bilateral agreement at the start of the year granting quota-based access to British cars and Scotch whisky the EU is now looking for a more liberal arrangement in order to stay competitive. These industries have long been the most protected in India.
Indian negotiators are also trying to reduce regulatory obstacles facing domestic exporters in the EU market. In areas such as fisheries, tight inspections like repeated examination of consignments raise costs of doing business. The same applies to agriculture and industrial products. In pharmaceuticals, India wants quicker approvals for its products, which now experience lengthy holdups in the EU’s regulatory pipeline. Moreover, India is attempting to meet the EU’s Maximum Residue Limits (MRLs) for farm products, which have been on the world agenda.
To reinforce its negotiating position, India has analyzed the EU’s agreement with Mercosur to see what light it might shed on the EU’s position and what potential reference points there might be for its own agreement.
In the meantime, a recent report by the European Commission to the European Parliament highlighted the deepening trade relationship, reporting that the EU is India’s biggest trading partner and vice versa in the Global South. In 2024, the two-way trade in goods stood at €120 billion, which is a 90 percent increase from the previous decade. Approximately 6,000 European companies are now present in India. Indian investment in the EU is still small at about €10 billion, and India remains below 2.5 percent of the EU’s trade in goods and services. The report identified high tariffs and domestic restrictive policies within India as the major obstacles that hinder the potential of the economic relationship.
The report stressed the need for India the EU to work jointly evaluating strategic trade potential and other background risks. It bolded the necessity for a secure supply of key raw materials, which are necessary for robust industrial ecosystems. India’s signing of the G7 Critical Minerals which are necessary for robust industrial ecosystem.